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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Malcolm vMackenzie & Ors [2004] EWCA Civ 1748 (21 December 2004) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2004/1748.html Cite as: [2004] EWCA Civ 1748, [2005] ICR 611, [2005] 1 WLR 1238, [2005] WLR 1238 |
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COURT OF APPEAL (CIVIL APPEALS DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
MR JUSTICE LLOYD
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE CHADWICK
and
LORD JUSTICE TUCKEY
Between :
WILLIAM ANDREW MALCOLM
Appellant
- and -
BENEDICT MACKENZIE
ALLIED DUNBAR PLC
-and-
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY
THE SECRETARY OF STATE FOR WORK AND PENSIONS
____________________
WILLIAM ANDREW MALCOLM |
Appellant |
|
- and - |
||
BENEDICT MACKENZIE ALLIED DUNBAR PLC -and- THE SECRETARY OF STATE FOR TRADE AND INDUSTRY THE SECRETARY OF STATE FOR WORK AND PENSIONS |
Respondent Intervenors |
____________________
____________________
Crown Copyright ©
Lord Justice Chadwick:
The underlying facts
"2. Mr Malcolm was a graphic designer. He went into partnership with two other men. Being self-employed rather than an employee, there was no employer's occupational pension scheme through which pension benefits could be provided for him. Instead he entered into a contract on 1 June 1986 with the Second Respondent [Allied Dunbar plc] under the regime then in existence for tax-approved pension provision by the self-employed. This was a retirement annuity contract, under section 226 of the Income and Corporation Taxes Act 1970. He continued to make contributions under this contract until 1993.
3. Differences arose between the partners, and the partnership came to an end. One of the three died, and the other two were faced with liabilities which they could not pay. Insolvency proceedings followed in relation to both of them and the estate of the third was also administered as an insolvent estate. In Mr Malcolm's case, the Inland Revenue presented a bankruptcy petition and on 11 December 1996 he was made bankrupt. At first no trustee in bankruptcy was appointed. In 1998, with effect from 19 October, Mr Graham Petersen was appointed as his trustee in bankruptcy. He is a partner in the firm named as the First Respondent [Benedict Mackenzie]. He ought to be so named himself, as trustee in bankruptcy, but no point is taken on that.
4. The effect of this appointment was that his assets vested in his trustee in bankruptcy, under the Insolvency Act 1986, section 306. On 11 December 1999 Mr Malcolm was discharged from bankruptcy automatically under the 1986 Act. However, his debts have not all been paid, and those assets that had vested in the trustee in bankruptcy remain vested in him for the purpose of paying those debts. The trustee in bankruptcy's position is that the benefit of the pension contract is one such assets, and probably the only one worth anything.
5. On September 2000 Mr Malcolm attained the age of 60, at which, under the terms of the retirement annuity contract, it would be possible for benefits to be drawn. The main benefit is an annuity. Under clause 9(2), however, there is an option to commute part of the pension and take it as a lump sum. This option is almost invariably taken, since the lump sum is taken free of tax. Clause 9(1) allows the transfer value of the contract to be applied towards another contract (the so-called open market option).
6. In July 2002 the trustee in bankruptcy sought to obtain the benefit of the retirement annuity contract from the insurer, by the application of the transfer value towards a personal pension scheme, part of which he would then have commuted for a lump sum and the rest would have been paid by way of an annuity. Mr Malcolm asserted that the trustee in bankruptcy was not entitled to it. Allied Dunbar issued a cheque but then stopped it. After some correspondence, Allied Dunbar told Mr Malcolm that they would pay the transfer value to another pension provider at the direction of the trustee in bankruptcy unless he started court proceedings to prevent them. On 5 February 2003 he issued the application notice which is before me."
These proceedings
"The first was that his pension fund should not form part of his estate under the insolvency legislation as it stood at 1996 (the date of his bankruptcy). The second argument was that, even if the first argument was wrong, Mr Malcolm was entitled to the benefit of s11 of the Welfare Reform and pensions Act 1999 ("s11"). Mr Malcolm's third argument was that, if his first and second arguments were wrong, then he was entitled to rely on Article 14 of ECHR."
Lord Justice Neuberger took the view that there was no real prospect of persuading the Court of Appeal that Mr Justice Lloyd had been wrong to decide the first two of those points against Mr Malcolm; but he was persuaded that permission should be granted in relation to the third point – namely the reliance on article 14 of the Convention. So it is that the appeal to this Court was limited to that ground. Mr Malcolm has been represented before us by counsel instructed by the Bar Pro-Bono Unit. The Court is grateful for the assistance he has been able to give.
The Convention on Human Rights
". . . in construing the relevant provisions of the [Insolvency Act 1986] the court should follow the approach indicated by Lord Diplock in Garland v British Rail Engineering Ltd [1983] 2 AC 751 at 755, and construe the words of the statute, if they are reasonably capable of bearing such a meaning, as intended to carry out an international obligation which the United Kingdom has assumed under a treaty or convention and not so as to be inconsistent with that obligation."
It is in that context that we were referred to article 14 of the Convention and to article 1 of the First Protocol.
"The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, political or other opinion, national or social origin, association with a national minority, property, birth or other status."
Article 14 confers no independent or 'freestanding' right not to be subjected to discriminatory treatment. Its object and effect is to secure the enjoyment, without discrimination, of the other rights conferred by the Convention. The right in relation to which Mr Malcolm claims that he suffers discriminatory treatment is that conferred by article 1 of the First Protocol:
"Every natural and legal; person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
The judge accepted that Mr Malcolm's rights under the retirement annuity contract into which he entered on 1 June 1986 were "possessions" in that context. So he was entitled not to be deprived of those rights, save in the public interest and subject to the conditions provided for by law. And, if he were to be deprived of those rights in circumstances which subjected him to discriminatory treatment, he was entitled to invoke article 14.
Differential treatment in relation to pension rights
"16. A common feature of an occupational pension scheme is a forfeiture provision, under which, if a member becomes bankrupt, his or her right to benefit is forfeited, and the equivalent benefits are then held by the trustees on discretionary trusts under which the benefits may be paid to him or applied for his or her benefit. In practice, I understand, it is very common for the discretion to be exercised in favour of the member so that, despite bankruptcy, he or she will in fact receive the pension benefits. Because this is a matter of discretion, however, there is no asset of the bankrupt that can vest in the trustee in bankruptcy. This is a development of a type of provision that used to be common in private trusts, reflected in section 33 of the Trustee Act 1925. Its validity in the context of an occupational pension scheme was upheld in Kemble v Hicks [1998] PLR 141. It was not the subject of any legislation until 6 April 1997 when section 92 of the Pensions Act 1995 came into force. This provided that entitlement to a pension from an occupational pension scheme may not be forfeited but, by way of exception, permitted forfeiture by reference to the bankruptcy of the person entitled to the pension. This did not impose such a provision on an occupational pension scheme, but it declared the validity of such provisions which were common. They were not universal, and Patel v Jones [2001] BPIR 919 is an example of a scheme from which such a provision was absent.
17. By contrast, the position of an individual with a retirement annuity contract or a personal pension scheme was different. This is what Mr Malcolm complains of. Because the pension is provided under contract, not by way of trust, there are no trustees upon whom a discretion can be conferred to apply the relevant benefits according to any discretion. The benefit of the contract is undoubtedly an asset of the insured person. Accordingly in Re Landau [1998] Ch 223, Ferris J held that both the cash lump sum and the continuing annuity payable under a retirement annuity contract were property of the bankrupt which vested automatically in the trustee in bankruptcy under the Insolvency Act 1986. In consolidated appeals against later decisions following Re Landau, reported as Krasner v Dennison [2001] Ch 76, the Court of Appeal approved the decision and held that it applied to a personal pension scheme as well. In Patel v Jones, mentioned above, the same result was held to follow in relation to an occupational pension scheme without a forfeiture clause. In Rowe v Saunders [2002] EWCA Civ 242, [2002] 2 All ER 800, the Court of Appeal followed Krasner v Dennison and held that the provisions in question were not inconsistent with article 1 of the First Protocol to the European Convention on Human Rights."
"The pension rights of a member of an occupational pension scheme who becomes bankrupt are usually protected from seizure to pay off creditors. Personal pension holders do not enjoy the same protection. We believe that this is unfair. It is only reasonable to expect that everyone who has made a genuine attempt to save for their retirement should have their rights protected, regardless of the type of pension arrangement they have. We therefore propose that all tax-approved private pension rights should be exempt from the bankruptcy process, thus falling outside the jurisdiction of the trustee in bankruptcy."
The Welfare Reform and Pensions Act 1999
"Where a bankruptcy order is made against a person on a petition presented after the coming into force of this section, any rights of his under an approved pension arrangement are excluded from his estate."
In that context, "approved pension arrangement" has the meaning given by section 11(2). The expression includes an occupational pension scheme, a retirement annuity contract and a personal pension scheme in respect of which approval has been given under the relevant provisions in Part XIV of the Income and Corporation Taxes Act 1988 or their statutory predecessors.
The judge's decision in relation to article 14 of the Convention
"The third ground on which Mr Malcolm contends that the trustee in bankruptcy is not entitled to take the benefit of the retirement annuity contract relies on the human rights dimension, and is expressed by reference to article 14 of the European Convention on Human Rights, prohibition of discrimination. He says that because he could only use a retirement annuity contract for his pension provision, under which the benefits vest on bankruptcy in his trustee in bankruptcy, whereas an employed person holding benefits under an occupational scheme does not lose his benefits on bankruptcy, the actions of the trustee in bankruptcy are discriminatory and against equality of human rights, and they put Mr Malcolm in an extremely disadvantaged position upon retirement as compared with a member of an occupational pension scheme."
But, as the judge pointed out, it was not open to the trustee in bankruptcy to act otherwise. As the law stood before 29 May 2000 – or, at the least, as it was understood to be in the light of the decision in In re Landau (supra) - the retirement annuity contract did vest in the trustee under section 306 of the Insolvency Act 1986; it was an asset of substantial value and he was bound to take steps to realise that value for the benefit of creditors. The judge observed, correctly, that "although Mr Malcolm complains of the actions of the trustee in bankruptcy, he is really complaining about the law under which the trustee in bankruptcy can and must take steps to realise his pension benefits and distribute them to creditors".
"For those various reasons, therefore, I hold that Mr Malcolm is unable to complain of what happened before 2 October 2000 because his claim is not brought in the limited circumstances in which the Human Rights Act 1998 has retrospective effect. I also hold that he cannot get round this difficulty by arguing that the complaint is of an act done since 2 October 2000. From that conclusion it follows that his application must fail."
"59. However, it is necessary to examine more closely the basis of the difference of treatment. As I have said, the difference does not arise from any legislative provision. It stems from the fact that occupational pension schemes are established by way of trust, with trustees, so that it is possible to include among the trusts and powers in the trust deed or rules a provision for forfeiture in the event of bankruptcy, whereas a retirement annuity contract, like a personal pension scheme, is a bilateral contract, with no possibility of such a provision which would be valid in law. Such a provision in an occupational pension scheme was recognised as valid by the Pensions Act 1995, as from 1997, but in 1996, at the time of Mr Malcolm's bankruptcy, it was a matter of general trust law. Similarly, the impossibility of achieving the same effect in relation to benefits under a retirement annuity contract was the result of ordinary principles of contract law. It may perhaps be that, if the point had been thought about, a trust structure could have been devised under which the benefits of a retirement annuity contract or personal pension scheme could have been provided, and which could have included a forfeiture clause. I do not know whether this would have complied with the fiscal rules for approval of such contracts or with the law on forfeiture provisions. At all events, even if such an approach would have been possible, it was not adopted in this case nor, so far as I am aware, in any case.
60. So the difference of which Mr Malcolm complains results from the different legal structure used for two types of pension provision, and from the fact that it is open to those establishing an occupational pension scheme to include a forfeiture clause, under which, on the face of it, the member does lose his pension benefits on bankruptcy, but he does so in a way in which, on the one hand, they cannot be made available to his trustee in bankruptcy and thus to his creditors, and on the other the benefits are available to be applied for his benefit, and in practice they usually are so applied."
This appeal
"Subject as follows, a bankrupt's estate for the purposes of any of this [second] Group of Parts [Insolvency of Individuals; Bankruptcy] comprises –
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
(b) any property which by virtue of any of the following provisions of this Part [Part IX] is comprised in that estate or is treated as falling within the preceding paragraph."
Section 283(2) excludes from the bankrupt's estate (a) such tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him in his employment, business or vocation and (b) such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his family. Sections 283(3) and (3A) exclude property held by the bankrupt on trust for any other person, rights of nomination to vacant ecclesiastical benefices and certain tenancies. Section 283(4) is in these terms (so far as material):
"References in any of this Group of Parts to property, in relation to a bankrupt, include references to any power exercisable by him over or in respect of property . . ."
"Property" is given a wide meaning by section 436 of the Act:
"'property' includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property."
"In order to achieve the result for which the appellants contend it would be necessary either (i) to construe the words in section 436 IA 1986 which define "property" in such a way as to exclude rights under retirement annuity contracts and personal pension schemes, or (ii) to construe the words in section 283(1)(a) IA 1986 (which define the bankrupt's estate for the purposes of Part IX of the Act) in such a way as to exclude such rights where the contract or scheme contains a restriction on alienation, or (iii) to construe the words in section 306 IA 1986 (which provide for the vesting of the bankrupt's estate in the trustee in bankruptcy immediately on his appointment) in such a way as to exclude such rights where the contract or scheme contains a restriction on alienation, or (iv) to construe section 310 IA 1986 so as to apply to income of, or derived from, property which has vested in the trustee in bankruptcy under section 306 IA 1986. We were not, I think, asked to attempt the tasks set under (i), (ii) or (iii) of that analysis. The appellants recognise, perhaps, that that would be to attempt the impossible. . . ."
The other members of the Court (Lord Justice Kennedy and Lord Justice May) expressed agreement with that analysis. It was approved by this Court in Rowe v Sanders [2002] EWCA Civ 242, [48]–[50], [2002] BPIR 847, 858, and noted at [2002] 2 All ER 800.
Conclusion
Lord Justice Tuckey:
Lord Justice Mummery:
ORDER: Appeal dismissed. Permission to add additional grounds and permission to appeal refused.